Oil and Gas Exploration

There’s almost zero rationale for Arctic oil exploration, says Goldman Sachs analyst

A file photo of an offshore ice-resistant oil-producing platform.
Sergey Anisimov | Anadolu Agency | Getty Images

Drilling the Arctic region for oil cannot be justified against the background of the major shift in the global oil production paradigm, Goldman Sachs' lead European commodities equity specialist said on Thursday.

"Overall the idea that we have to go into the Arctic to find new resources I think has been dispelled by the enormous cheap, easier to produce and quicker time-to-market resources in the Permian onshore U.S.," Michele Della Vigna, commodity equity business unit leader in EMEA at Goldman Sachs, told CNBC's Squawk Box on Thursday.

"We think there is almost no rationale for Arctic exploration," he asserted, noting that while certain areas, such as the Russian Arctic, potentially have workable elements given that the location is much closer to the coast and easier to explore, other areas, such as Alaska, can fairly be considered more in the vein of vanity projects.

"Immensely complex, expensive projects like the Arctic we think can move too high on the cost curve to be economically doable," Della Vigna explained, pointing to a new "oil order" as represented by a much shorter and cheaper production cycle driven by the U.S.

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Della Vigna sees rapid ongoing progress being made in power generation, where he says wind and solar energy systems in different regions are already perfectly competitive - even without subsidies - and are now taking more than 1 percent market share each year.

The Goldman Sachs specialist noted that these sources of renewable energy are clearly winning out against hydrocarbons. He also pointed to the oversupply of gas, a dynamic which he sees persisting for the next 5 – 6 years due to "massive" LNG (liquid natural gas) capacity coming onstream from the U.S. and Australia, as lowering the price of that energy source.

"We think cheap gas with more competitive renewables will be the perfect combination to lower the carbon footprint of the world and shift away a lot of the demand from coal. Coal is going to be the stranded asset," he predicted.

Turning to other evolving energy systems, Della Vigna said that there has been a clear breakthrough with regards to electric vehicles.

"In China, it's about 1 percent of current auto sales - it has gone through customer acceptance. Every time we see that happening, typically growth accelerates and we think we're going to see that in electric vehicles," he explained, before cautioning that the pedal isn't flat on the metal for the industry quite yet.

"Bear in mind it takes 15 years plus to replace the car fleet. So it's going to be a slow process," he concluded.

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